Modernising compliance functions with regtech

Regtech addresses the complexities of regulatory requirements, offering innovative tools to modernise compliance functions, streamline processes and enhance efficiency. This article explores its role in compliance and reporting within the banking sector, particularly under the stringent requirements of Basel IV, the European Union Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD)

Understanding regtech

Regtech refers to the use of technology to manage regulatory processes within the financial industry. The term regtech encompasses a wide range of applications, from automated regulatory reporting to advanced data analytics and real-time monitoring. The primary goal of regtech is to improve efficiency, reduce costs and enhance the accuracy of compliance activities.

With the introduction of Basel IV, which has introduced new ways to calculate risk-weighted assets (RWAs), regtech has become indispensable in ensuring compliance and optimising risk management practices.

Challenges in traditional compliance functions

Traditional compliance functions face numerous challenges:

• Manual processes and inefficiencies 

  Compliance tasks often involve manual data entry and report generation, which are time-consuming and prone to errors. These manual processes hinder efficiency, leading to delays in compliance reporting and increased operational risks.

• High costs and resource-intensive operations 

  Maintaining compliance requires substantial financial and human resources, making it a costly endeavour for banks. Compliance teams need to stay up to date with regulatory changes, conduct regular audits and ensure all processes meet stringent standards.

• Slow response to regulatory changes 

  Adapting to new regulations is often slow and cumbersome, resulting in compliance risks. Traditional compliance frameworks struggle to keep up with the dynamic regulatory environment, where changes are frequent and complex.

The impact of regtech solutions

Regtech solutions offer several core components that significantly transform compliance functions:

• Automated regulatory reporting

  Automation streamlines the generation and submission of regulatory reports, reducing manual effort and increasing accuracy. Automated reporting systems can quickly compile data from various sources, apply regulatory rules and generate accurate reports in the required formats. This ensures reports comply with the latest standards. Additionally, automated systems minimise errors and ensure consistent regulatory reporting.

• Advanced data analytics for compliance

  Data analytics tools help banking institutions analyse vast datasets to identify compliance risks and opportunities for improvement. These tools can process large volumes of data, uncovering patterns and trends that might indicate potential compliance issues. Advanced analytics enable proactive risk management by identifying areas of non-compliance and providing insights for corrective actions.

• Enhanced risk management frameworks

  Advanced algorithms and models improve risk assessment and management, aligning with Basel IV requirements. Regtech solutions offer sophisticated risk management tools that can evaluate various types of risks, including credit, market and operational risks. These tools use advanced algorithms to provide accurate risk assessments, enabling banks to allocate capital more effectively and maintain financial stability.

• Faster adaptation to regulatory changes

  Advanced technologies enable faster adjustments to new regulations, maintaining compliance with minimal disruption. Regtech solutions provide real-time updates and automated rule changes, allowing institutions to adapt swiftly to evolving regulatory requirements. This ensures that compliance processes remain up to date and accurate, reducing the risk of non-compliance.

Future trends and developments in regtech

Several trends are poised to shape the future of regtech in the following years:

• Increasing adoption of AI and machine learning 

  Artificial intelligence and machine learning will further enhance compliance functions by providing advanced risk analysis and predictive insights. These technologies can analyse large datasets, identify patterns and predict potential compliance issues, enabling proactive risk management.

• Expansion of regtech for smaller institutions 

  Regtech solutions will become more accessible to smaller financial institutions, democratising compliance. Advances in technology and cost reductions will enable smaller institutions to adopt regtech tools that were previously out of reach. This will enhance their ability to meet regulatory requirements, reduce compliance costs and compete effectively.

• Collaboration between regulators and technology providers

  Ongoing collaboration will ensure regtech solutions meet regulatory requirements and address industry challenges. By working together, regulators and technology providers can develop standards and frameworks that ensure the effectiveness and reliability of regtech solutions.

The future of regtech

The transformative role of regtech in modernising compliance functions cannot be overstated. As financial institutions navigate the complexities of Basel IV and the EU-CRR/CRD, regtech provides the tools necessary to streamline processes, enhance accuracy and reduce costs.

RiskAvert, the robust risk and compliance platform, stands out as a critical ally for financial institutions striving to achieve regulatory compliance. Offering compliance and reporting out of the box, RiskAvert provides a unified and modular environment that integrates seamlessly with existing systems. By leveraging RiskAvert, institutions can confidently meet Basel IV obligations, establish a single point of truth and position themselves as leaders in regulatory compliance.
 

 

Further reading

Deloitte, Regtech is the new fintech

EY, Regulatory technology (regtech): navigating the right technology to manage the evolving regulatory environment

KPMG, Unlocking the potential of regtech

Grant Thornton, Risk and regulatory insights

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